Financial Update ViewPoint - 2011 Q2: National Banking Trends

After a slight decline in the fourth quarter, U.S. commercial bank performance, as measured by aggregate return on average assets, continued its slow but steady
improvement (see the chart).

Unfortunately, most of the improvement has come from reducing the amount of provision, which was the lowest amount since the beginning of the crisis, rather than increased
operating income. However, nonperforming loans as a percentage of total loans continued to increase at community banks, suggesting that provision expense should be
increasing, not declining. At the same time, banks are still seeking to stabilize income. The net interest margin, the most significant source of income for most banks,
fell in the first quarter for banks of all sizes (see the chart).

The margin is being affected both by the growth in nonperforming loans and a lack of loan growth.